“We delivered strong financial results in the historically slower first
quarter, achieving greater results than Q4 for the first time in our
company’s history. This was driven both by the strategic growth
initiatives we put in place in 2012 beginning to come to fruition, as
well as the completion of several deals that we have been tracking for
several quarters. We also saw significant growth in renewals of support
contracts as customers committed to the migration to the latest versions
of Mediasite. As a result of these efforts, favorable product mix and
expense reductions, our gross margins have improved, we have sequential
growth in billings and have seen improvement year-over-year in cash from
operations,” said Gary Weis, CEO of Sonic Foundry. “This year we will
continue to innovate, rolling out the new features and services our
customers value highly, while continuing to expand growth opportunities
in new market segments.”

Sonic Foundry will host a corporate webcast today for analysts and
investors to discuss its fiscal 2013 first quarter results at 3:30 p.m.
CT / 4:30 p.m. ET. It will use its patented rich media communications
system,
Mediasite,
to webcast the presentation for both live and on-demand viewing. To
access the presentation, register at
www.sonicfoundry.com/earnings.
An archive of the webcast will be available for 30 days.

EXPLANATION OF NON-GAAP MEASURES

To supplement our financial results presented on a GAAP basis, we use a
measure of non-GAAP net income or loss in our financial presentation,
which excludes certain non-cash costs and includes certain cash billings
not recognized as revenue for GAAP purposes. Our non-GAAP financial
measure is not meant to be considered in isolation or as a substitute
for comparable GAAP measures, and should be read only in conjunction
with our consolidated financial statements prepared in accordance with
GAAP. Our management regularly uses our supplemental non-GAAP financial
measures internally to understand, manage and evaluate our business and
make operating decisions. These non-GAAP measures are among the factors
management uses in planning for and forecasting future periods.
Management also believes that these non-GAAP financial measures provide
useful information to investors and others in understanding and
evaluating our operating results and future prospects in the same manner
as management and in comparing financial results across accounting
periods and to those of peer companies. Our non-GAAP financial measures
reflect adjustments based on the following items:

Billings not recorded as revenue: We have included the cash effect of
billings not recorded as revenue, which are deferred for GAAP
purposes, in arriving at non-GAAP net income or loss. Our services are
typically billed and collected in advance of providing the service
which requires minimal cost to perform in the future. Billings are a
better indicator of customer activity and cash flow than revenue is,
in management’s opinion, and is therefore used by management as a key
operational indicator.

Depreciation and amortization of intangible and other assets expenses:
We have excluded the effect of depreciation and amortization of assets
from our non-GAAP net income or loss. Amortization of intangible
assets expense varies in amount and frequency and it is significantly
affected by the timing and size of our acquisitions. Depreciation and
amortization of asset costs is a non-cash expense that includes the
periodic write-off of tooling, product design and other assets that
contributed to revenues earned during the periods presented and will
contribute to future period revenues as well.

Non-cash provision for income taxes: We have excluded the impact of
the provision for income taxes from our non-GAAP net income or loss.
The provision for income taxes is associated with the difference in
treatment of goodwill which is not expensed for GAAP purposes but is
amortized over a fifteen year life for Federal income tax purposes.
The result is a non-cash expense and liability that will never be paid.

Stock-based compensation expenses: We maintain an employee qualified
stock option plan under which we grant options to acquire common stock
to eligible employees. We also maintain an employee stock purchase
plan under which common stock may be issued to eligible employees at a
reduced price. Stock-based compensation expenses are recorded for
these plans in accordance with FASB Accounting Standards Codification
subtopic 718, Compensation-Stock Compensation. Stock-based
compensation expense is a non-cash expense. As a result, we have
excluded the effect of stock-based compensation expenses from our
non-GAAP net income or loss.